Highlights

Excluding non-recurring sales to Petrol Ofisi of GBP2.1 million in the prior year, turnover was 60% higher than the previous year at GBP3.4 million (2007: GBP2.1 million)

Gross profit increased by 21% to GBP2.9 million (2007: GBP2.4 million)

The operating loss before intangible amortisation, goodwill impairment charges and exceptional items reduced by 24% to GBP3.8 million (2007: GBP5.0 million Loss restated)

The cash outflow before financing reduced by 62% to GBP2.2 million (2007: GBP5.8 million)

Oxonica Energy (Envirox): Sales of GBP1.1 million (2007: GBP2.8 million) – Excluding the non-recurring Petrol Ofisi sales in the prior year (GBP2.1 million), sales increased by 60% supported by Stagecoach’s fleet expansion and initial sales into the mining sector. Strong pipeline of potential customers established following successful re-validation trial with Stagecoach which confirmed 4.3% fuel saving after 3 months

Oxonica Materials (Optisol): Sales of GBP61,000 (2007: GBP361,000) – Disappointing downturn in sales caused by poor summer weather in the UK, de-stocking by customers and a high product price point – action being taken to restructure supply chain to reduce cost

Oxonica Security: Sales more than doubled to GBP1.5 million (2007: GBP0.7 million) – Letter of Intent received on December 3, 2008 for 3 purchases of anti-counterfeiting development products totalling $4.0 million for delivery by October 1, 2009 as part of a continuing project with an existing customer – first purchase order for $1.4 million received prior to year end

Oxonica Diagnostics: Sales of GBP698,000 (2007: GBP311,000) – Assignment and License Agreement signed with BD on September 19, 2008 – $3.5 million paid on signing the agreement with further payments of up to $3.5 million payable on Oxonica completing certain technical transfer milestones. In addition, Oxonica is entitled to payments on future sales of BD products covered by the patents assigned to BD.

High Court judgment issued in favour of Neuftec in the Envirox patent licensing dispute – having taken legal advice, Oxonica Energy has appealed the decision which is due to be heard by the Court of Appeal in June 2009

A secured discounted loan notes facility agreed with BlueCrest Capital Finance L.P. on April 23, 2008 – notes with a value of GBP1.5 million were drawn down on the same date

Commenting on the announcement, Richard Farleigh, chairman, said:

The Group continues to make progress towards its objective of delivering a financially sustainable business through commercialising Oxonica’s nanomaterial products, while controlling costs.

Chairman’s statement

In 2008 the Oxonica Group has made significant progress towards its strategic objectives, announced this time last year. It has increased the focus on its Nanomaterials business, found a partner for its Diagnostics business and has reduced the on-going cash needs of the Group. On September 19, 2008, the Group announced a deal with BD in Diagnostics, which generated a $4.75 million cash inflow in 2008, with a further inflow expected in 2009. The BD deal also allowed the Group to significantly downsize its US operations and yet still maintain a significant ongoing interest in the business with BD making payments on any sales of BD products covered by Oxonica’s technology for the remaining lifetime of the patents (over 15 years).

Oxonica also continued to build its Nanomaterials business with notable successes in Energy and Security. In February 2008, the Group announced the successful conclusion of a follow-on trial with Stagecoach, which confirmed the performance of Envirox and verified the level of fuel savings achieved by Stagecoach. This trial result combined with rapidly rising fuel costs, increased environmental concerns and a marketing push in the UK led to an upsurge of interest in Envirox. Oxonica Energy now has a stronger pipeline of potential UK customers than at any time in its history. In addition to growing sales in the UK bus and road haulage sector, Energy has successfully targeted the mining sector making initial sales into Russia and, shortly after the year-end, the company secured its first US customer in this sector.

In the US, the Security business performed very well. In April 2008, the business received purchase orders totalling $2.15 million for development products for an existing customer. These products were delivered as planned by October 2008 and on December 3, 2008 we announced the receipt of a letter of intent for three further purchases of development products from this customer amounting to $4 million for delivery by October 2009. The first purchase order under this LOI for $1.4 million was also received prior to the year-end.

The Board believe that Oxonica is now well positioned with a significantly reduced cash burn and real growth opportunities in both its Energy business and its Security business. The continued high levels of interest in energy efficiency and reduction of carbon dioxide emissions aligns particularly well with Envirox.

Results

In the year to December 31, 2008, after excluding non-recurring sales of GBP2.1 million to Petrol Ofisi in the previous year, turnover increased by 60% to GBP3.4 million (2007: GBP2.1 million). However, when the sales to Petrol Ofisi, under the contract which was terminated on May 22, 2007, are included, Group turnover was 19% lower than in the corresponding period in 2007 (2007: GBP4.2 million).

The gross margin improved from 58% to 86% partly due to the ability to utilise Envirox inventory (sourced from Nyacol) previously written-down as a result of the cancellation of the Petrol Ofisi contract and partly due to a favourable sales mix.

Research and development costs increased by 12% to GBP2.9 million (2007: GBP2.6 million) as a result of increased development effort in the US in both Security and Diagnostics in the first half of 2008. Excluding intangible amortisation and exceptional items, sales and marketing and administration expenses reduced by 31% to GBP4.0 million (2007: GBP5.9 million) largely due to the actions taken to reduce costs following the loss of the Petrol Ofisi contract in the previous year.

Exceptional items include the provision of GBP0.55 million (2007: nil) for Neuftec’s costs associated with the Neuftec litigation and a goodwill impairment charge of GBP5.1 million (2007: nil) in connection with Oxonica Inc, which reflects a review of the goodwill recognising current economic conditions as well as the impact of the agreement with BD.

The operating loss including intangible amortisation, goodwill impairment and exceptional items was 81% higher than the previous year at GBP9.7 million (2007: GBP5.4 million Loss restated) However, in-line with the strategic objective of reducing the ongoing cash needs of the Group, the cash outflow before financing reduced by 62% to GBP2.2 million (2007: GBP5.8 million). Group cash balances, including short term deposits, at the end of the year were GBP3.6 million (2007: GBP4.8 million).

The Board is not recommending the payment of a dividend (2007: nil).

Funding

Having successfully raised GBP4.0 million in additional equity funds in December 2007, on April 23, 2008 the company agreed a secured discounted loan notes facility with BlueCrest Capital Finance, L.P. GBP1.5 million has been drawn down on this facility.

Board

As the company reported in the interim results, Martin Hagen did not seek re-appointment to the board at the AGM due to an increase in his other professional commitments. The company announced on January 6, 2009 that it had appointed George Elliott as a non-executive director. Elliott will chair the Audit and Nominations Committees of Oxonica and I am delighted to welcome him to the board.